10-Q: Catalyst Bancorp Swings to Profit, Boosts Net Interest Margin

Catalyst Bancorp, Inc. reported a net income of $1.6 million for the nine months ended September 30, 2025, a significant turnaround from a $3.7 million net loss in the prior year, driven by improved net interest margin and reduced non-interest expenses.

Summary

• Net income for the nine months ended September 30, 2025, was $1.6 million, a substantial improvement from a net loss of $3.7 million in the same period of 2024.
• Total assets increased by $7.1 million, or 2.6%, to $283.8 million at September 30, 2025, from $276.7 million at December 31, 2024.
• Loans receivable, net of unearned income, decreased by $2.3 million, or 1.4%, to $164.8 million at September 30, 2025.
• Investment securities grew by $17.6 million, or 41.8%, to $59.8 million at September 30, 2025, primarily funded by excess cash and additional borrowings.
• Deposits increased by $698,000, or 0.4%, to $186.4 million at September 30, 2025, with a notable 38.6% increase in savings deposits due to a high-yield special.
• Borrowings increased by $5.1 million, or 53.7%, to $14.7 million at September 30, 2025, used to partially fund investment securities growth.
• Net interest income for the nine months ended September 30, 2025, rose by $210,000, or 3.0%, to $7.3 million.
• Net interest margin for the nine months ended September 30, 2025, improved by 36 basis points to 3.92% compared to 3.56% in the prior year.
• A reversal of provision for credit losses of $36,000 was recorded for the nine months ended September 30, 2025, compared to a $531,000 provision in the same period of 2024.
• Non-interest expense decreased by $541,000, or 7.6%, to $6.6 million for the nine months ended September 30, 2025, largely due to reduced data processing costs after a core system upgrade.
• The company repurchased 148,546 shares of its common stock at an average cost of $11.98 per share during the nine months ended September 30, 2025.
• Non-performing assets increased by $74,000, or 4.1%, to $1.9 million at September 30, 2025, from $1.825 million at December 31, 2024.
• Substandard loans increased to $4.729 million at September 30, 2025, from $2.802 million at December 31, 2024, including a $3.3 million commercial loan downgraded to substandard.

Sentiment

Score: 7

Explanation: The company demonstrated a strong turnaround from a net loss to a net profit, improved net interest margin, and effectively reduced non-interest expenses. Share repurchases also indicate a commitment to shareholder value. However, the increase in non-performing assets and substandard loans, coupled with a decrease in total loans, presents a notable concern that tempers overall positive sentiment.

Positives

• Achieved a net income of $1.6 million for the nine months ended September 30, 2025, a significant turnaround from a $3.7 million net loss in the prior year.
• Net interest margin improved by 36 basis points to 3.92% for the nine months ended September 30, 2025, indicating better profitability from core banking activities.
• Recorded a reversal of provision for credit losses of $36,000, reflecting a reduction in expected credit losses and a decline in total loans.
• Non-interest expense decreased by 7.6% for the nine months ended September 30, 2025, primarily due to cost savings from a new core processing system and other technology upgrades.
• Successfully attracted new deposits and deepened existing customer relationships through a high-yield savings special, leading to a 38.6% increase in savings deposits.
• Actively engaged in share repurchases, buying back 148,546 shares at an average cost of $11.98 per share, demonstrating a commitment to returning value to shareholders.
• No loss on sales of investment securities in 2025, compared to a $5.5 million loss in the prior year, contributing to improved non-interest income.

Negatives

• Total loans receivable decreased by 1.4% to $164.8 million, indicating a contraction in the loan portfolio.
• Non-performing assets increased by 4.1% to $1.9 million at September 30, 2025, from December 31, 2024.
• Substandard loans significantly increased to $4.729 million at September 30, 2025, from $2.802 million at December 31, 2024, including a $3.3 million commercial loan downgrade.
• Interest-bearing demand deposits declined by 26.0%, largely due to fluctuations in public fund balances.
• Net interest income for the three months ended September 30, 2025, decreased by 3.2% compared to the same period in 2024.
• Foreclosed assets expense increased by 70.1% for the nine months ended September 30, 2025, due to higher net write-downs and losses on sales.

Future Outlook

The company anticipates sufficient funds to meet current funding commitments, expecting to retain the majority of maturing time deposits and continue utilizing secondary funding sources. Management also expects continued use of its secondary funding sources. The company's business strategy is re-focused on a relationship-based community bank model targeting smallto mid-sized businesses and business professionals, while continuing to serve its traditional customer base.

Management Comments

• Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings.
• The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
• The reversal of provision for credit losses was largely due to a reduction in expected credit losses on individually evaluated loans and a decline in total loans.
• The increase in net interest margin and net interest income over the comparable periods was primarily the result of loan growth during the last nine months of 2024 and the payoff of our BTFP advance.
• We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current funding commitments.

Industry Context

Catalyst Bancorp operates in the Acadiana region of south-central Louisiana, a community-oriented savings bank market. The shift from a traditional thrift model focused on long-term residential mortgages to a relationship-based community bank targeting smallto mid-sized businesses aligns with broader industry trends of diversification and localized service. The company's ability to improve its net interest margin and reduce non-interest expenses through technology upgrades reflects a common strategy among regional banks to enhance efficiency and profitability in a competitive environment. The increase in non-performing and substandard loans, however, warrants close monitoring as it could signal localized economic pressures or specific portfolio weaknesses, contrasting with a generally stable or improving credit quality trend seen in some larger banking sectors.

Comparison to Industry Standards

• The net interest margin of 3.92% for the nine months ended September 30, 2025, is competitive within the community banking sector, often exceeding the average for larger national banks but in line with well-managed regional institutions.
• The increase in non-performing assets by 4.1% and substandard loans by 68.8% (from $2.802M to $4.729M) raises concerns compared to industry benchmarks, where many banks are striving to maintain or improve asset quality. For example, while larger banks like JPMorgan Chase or Bank of America have generally seen stable or declining non-performing loan ratios, Catalyst's increase suggests specific portfolio challenges or localized economic stress.
• The loan-to-deposit ratio of 88.4% at September 30, 2025, is a healthy level, indicating strong liquidity and funding stability, comparable to many well-capitalized community banks and often lower than larger, more aggressive lenders.
• The significant reduction in data processing and communication expense (54.1% for nine months) following a core system upgrade demonstrates effective cost management, a key focus across the banking industry to improve efficiency ratios, similar to initiatives undertaken by peers like Hancock Whitney or Trustmark Corporation in their regional markets.
• The active share repurchase program, with 22% of original shares repurchased since January 2023, indicates a strong commitment to shareholder returns, a strategy often employed by mature, profitable banks with excess capital, such as First Horizon or Cadence Bank, to enhance shareholder value.

Legal Proceedings

• Not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business.
• No legal proceedings were material to financial condition or results of operations at September 30, 2025.

Stakeholder Impact

• Shareholders: Benefited from the company's return to profitability, improved net interest margin, and ongoing share repurchase program, which enhances shareholder value.
• Employees: Experienced increases in salaries, wages, bonus expense, and new grants of share-based compensation.
• Customers: Benefited from competitive offerings like the high-yield savings special, attracting new deposits and deepening relationships. However, some customers experienced technical errors with foreign ATM fees, which were subsequently refunded.
• Creditors: The company's increased borrowings and strong liquidity position indicate a stable ability to meet financial obligations.

Next Steps

• Continue to implement the re-focused business strategy targeting smallto mid-sized businesses and business professionals.
• Monitor and manage the loan portfolio, particularly the increase in non-performing and substandard loans.
• Provide annual-only disclosures required by ASU 2023-09 in the Annual Report on Form 10-K for the year ended December 31, 2025.
• Prepare for the expected adoption of ASU 2024-03 for periods beginning after December 31, 2026.

Key Dates

Recommendation

Catalyst Bancorp's significant swing from a net loss to a net profit, coupled with an improved net interest margin and effective cost management, are strong positive indicators. The ongoing share repurchase program also signals management's confidence and commitment to shareholder value. However, the contraction in the overall loan portfolio and the notable increase in non-performing assets and substandard loans introduce a degree of uncertainty regarding future asset quality and growth prospects. While the positives are compelling, the credit quality concerns warrant a 'hold' recommendation, suggesting investors monitor the company's ability to manage these loan-related challenges and sustain its profitability and growth trajectory.

Keywords

Catalyst Bancorp, CLST, SEC filing, 10-Q, financial results, net income, net interest margin, loan portfolio, deposits, investment securities, share repurchases, non-performing assets, substandard loans, banking, financial services, Louisiana